S&P: More Q4 strength ahead

Now that the S&P rally has achieved Oppenheimer’s target of 2060, their technical analyst Ari Wald asks what’s next.

While overbought conditions indicate a tactical opportunity to take profits, Wald thinks that the foundations for Q4 strength remain intact. Specifically, sentiment survey data suggests that many respondents have been on the wrong side of recent market strength and equities can continue to ‘climb the wall of worry’ while bears begin to capitulate. Wald’s next target for the S&P 500 is the index’s all-time high near 2130. (See Chart 1 of Investors Intelligence survey versus S&P 500).

Wald also makes the case that ‘as goes Energy, so goes the market’ and while he’s still expecting stocks to stay on trend, he sees the potential for additional Energy strength given the recent development of a bullish pennant pattern by the Energy SPDR (XLE) (see Chart 2). For the S&P 500, he thinks the rally can continue as long as XLE holds $67 support.

Meanwhile, Wald sees there is an ongoing secular rotation away from small caps (Russell 2000) and into large caps (S&P 500) and most especially into mega caps (S&P 100), and he expects this rotation to continue for the foreseeable future. (See article: Rotations into large-caps underway).

See Chart 1 and Chart 2.